Public Employee Press

Getting out of debt: Part 2 of a series
Payday loan debt traps

By DIANE S. WILLIAMS

With their promise of quick cash, payday loans sound like the answer when bills pile up and money's short. But DC 37's Municipal Employees Legal Services warns members that these loans are costly scams that trap many borrowers in a vicious cycle of recurring debt.

Lured by a celebrity's endorsement, Local 420 member Shellie Robinson, a mother of four, applied for a $1,000 payday loan over the Internet and got three loans of $300 each.

She had proof that she had paid them off. "But they kept demanding payment with harassing calls and then demands for cash. They threatened to take me to court and come arrest me on my job," she said.

"I was scared. The calls sounded like extortion. MELS stepped in and helped. I am very grateful to the union."

High fees, more debt

After giving birth, Victor Colon's wife was out of work. "I was short on the rent and needed money fast," said the Local 420 member. In two days, an online lender deposited $300 on his debit card. "I paid $20 every pay period, but I fell behind." His loan quickly jumped to $500. The lender threatened to sue and have him arrested.

Colon went to MELS, where an attorney told him he could not be arrested for debts. "I would not advise anyone to borrow online," Colon said.

"I was broke," said Clerical Associate Maryanne Giordano, a Local 1549 member. "My partner took out a payday loan and so did I. I paid back the first but soon I needed another. Now I was paying two, Ameriloan and United Cash, plus my rent. It almost landed me in Housing Court."

"Payday loans are based on your check, not your ability to repay," said MELS Attorney Carla Latty. "The fees and interest rates are high and if the loan is not paid off, the lender advances another loan with another transaction fee until the loan becomes unpayable."

In this recession, many working families and retirees find it hard to meet rising living expenses. Banks have tightened access to credit, and payday lenders happily fill the gap and their pockets by making the short-term, no-collateral loans.

Predatory payday lenders target lower-income working families and people on disability or Social Security who often can't pay back what they owe. The Center for Responsible Lending reports the average customer takes as many as nine payday loans.

Payday loans are small, usually under $400, but with large fees and interest rates that can climb to almost 400 percent a year, they bring in $30 billion a year for the business equivalents of loan sharks.

"These abusive loans are illegal in New York," Latty said. State laws cap interest at 26 percent and ban payday lenders from operating here, but their Internet loans evade the regulations.

DC 37 opposed legislation that would have ­allowed check cashers to expand into the payday-loan business.

"I needed money to get through a rough patch," said a DC 37 member who asked not to be identified. "My sister in Utah told me about payday loans. I'm sorry I ever did it, because it's made my life a living hell."

For a $400 loan, Fast Cash deducted a $100 fee and $75 weekly payments, she said. "I could not catch up. They took double payments. They threatened to arrest me. It was scary."

MELS stops loan scams

MELS helped her file for bankruptcy and ended the harassment. "The union helped a lot, thank God," she said, "and my MELS Legal Assistant Faye Robins was excellent."

The FBI Internet Crime Complaint Center tells victims with delinquent payday loans not to comply with harassing callers' demands, and to notify their bank and local authorities.

"Too often, by the time members come to MELS, the damage is already done," Latty said. "We can send 'cease and desist' letters. We advise members who gave payday lenders access to bank accounts to close them out."

MELS helped Giordano file for bankruptcy, represented her in Housing Court, and stopped the harrassing calls from payday lenders.

"MELS has just been beautiful," Giordano said. She estimates that she paid between $800 and $1,000 for a $400 payday loan.

"Payday loans are sneaky and dangerous," Giordano said. "There is no end to it. They take the money you owe them and they keep taking. You end up paying way more than you borrowed."